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State Name: New Jersey
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State Abbreviation: NJ
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Mortgages rates are at their best levels since early February following today's weaker-than-expected Employment Situation report. The improvement was moderate versus yesterday's offerings and the 30yr Fixed Conventional Best-Execution Rate remains unchanged at 3.875%. That means that today's improvements would be seen in the form of lower borrowing costs or additional lender credit. (read more about Best-Execution calculations).

Today's Employment Situation Report is generally regarded as the most important piece scheduled economic report in any given month, normally resulting in the highest trading volume and some of the more volatile market movements. MBS, or the "Mortgage-Backed Securities" that most directly affect mortgage rates, are participants in those market movements.

When economic data points toward a strengthening economy, it's the tendency of interest rates in fixed income markets (of which MBS are a part) to rise. Today's headline job creation of +115k payrolls fell short of projections in the neighborhood of +160-170k. As far as missed projections go, this one wasn't especially large, and so, neither is the bond market's reaction.

It should be noted, however, that the reaction is as large as we'd expect in terms of volume. Indeed, today's volume in most sectors is the highest since the last Employment Situation Report. Additionally, the move in stock markets was fairly large, the biggest day of losses in almost a month.

But bond markets were already very close to their strongest recent levels. So instead of getting a rally (for bond markets, "rally" = "lower rates") commensurate with stock market losses, we got a moderate rally in US Treasuries and an even more subdued version in MBS. Why did MBS underperform? There are two reasons that we see.

First is the notion that Treasuries tend to rise and fall more quickly with the markets. When there is a major positive implication for bond markets, Treasuries tend to be the bigger beneficiary, but they also tend to take the bad news harder than MBS. There could be some of this phenomenon in play today (we've talked about this some... read it HERE).

Second, and more clearly an issue is the hidden "wall" in mortgage rates created by the underlying mechanics of the MBS Market. Essentially, the market vehicles that can contain and transport mortgages at rates any lower than current offerings are like prototypes. There aren't many of them, they're relatively untested. They have little, if any track record. They might be dangerous, and they might go out of style quickly enough as to be unprofitable. We've spoken about this greater detail in the context of "buckets" (read that article HERE).

Long story short, it will take more time and more stability at low rates before the underpinnings of the MBS market can adapt to make room for those frontier buckets. Until then, further gains are minimal and hard-fought.

Today's BEST-EXECUTION Rates

30YR FIXED - 3.875%

FHA/VA -3.75%

15 YEAR FIXED - 3.125-3.25%

5 YEAR ARMS - 2.625-3. 25% depending on the lender

Ongoing Lock/Float Considerations

Rates and costs continue to operate near all time best levels

Current levels have experienced increasing resistance in improving much from here

Rates could easily move higher or lower, but given the nearness to all time lows, there's generally more risk than reward regarding floating

But that will always be the case when rates operate near all-time levels, and as 2011 showed us, it doesn't always mean they're done improving.

(As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario. There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).

About the Author

A former originator, Matthew began writing for Mortgage News Daily in 2007, covering a wide range of topics. Seeing a need in the marketplace, his focus increasingly shifted toward relating MBS and broader financial markets for loan originators.
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